As I have written for years, the true number of distressed properties or delinquent mortgages is significantly higher than what is published in most media outlets. In some "bubble burst" regions like California, Nevada, Arizona, and Florida, the potential delinquent mortgage numbers may be anywhere from 200% to 400% larger than what is being reported right now.

There are a number of reasons why U.S. banks are not readily admitting to how large the impending and forthcoming foreclosure "wave" is right now. First, banks do not want to admit or acknowledge how bad their financial losses are right now partly due to their concerns about their own stock values of their financial entities.

If the banks acknowledge their losses and take their financial "hit" for their quarterly or annual reports, then it may trigger a default on some on their off-balance sheet derivatives investments like Credit Default Swaps (a glorified hybrid form of an insurance and financial instrument).

A default of a multi-trillion dollar Credit Default Swap would effectively bankrupt the bank's parent company as many multi-trillion dollar Credit Default Swaps have also been leveraged 10 to 50 plus times their face amount.

To learn more about Credit Default Swaps, please view this video from the "Videos" section which is in regard to Long Term Capital Management's (LTCM - a $3 billion hedge fund business) collapse which almost single-handedly caused the world's financial markets to "freeze" back in the mid-1990s. LTCM was losing up to $500 million per day due to their hedge fund losses. Video link here -

http://www.youtube.com/watch?v=xGfXyVtiB1E

The Credit Crisis is really all about the unwinding of primarily unregulated Credit Default Swaps, Mortgage Backed Securities, Interest Rate Options Derivatives (these financial instruments were the primary cause of Orange County's 1994 bankruptcy through their Merrill Lynch investments), Structured Investment Vehicles (SIVs), and other financial and insurance hybrid instruments.

The Credit Crisis is NOT a "sub-prime mortgage" problem as originally portrayed by many in the business media as delinquent "sub-prime mortgages" represent a tiny fraction of the delinquent financial debt worldwide.

To better visualize how large the entire Credit Default Swap and derivatives market is worldwide, some analysts project the current valuation of the derivatives market to be close to 1,600 TRILLION DOLLARS. As a comparison, the combined value of all of the real estate, bond, and stock markets on planet Earth was recently valued at a grand total of 100 TRILLION DOLLARS.

Many of the largest big banks in the U.S. have had to rely upon bailouts from the Federal Reserve in recent years via anonymous lending facility programs such as The Term Auction Facility, Term Securities Lending Facility, or as many as ten (10) additional anonymous lending facilities.

Banks borrow and lend money using a "Fractional Reserve" lending system in which they tend to leverage their deposits somewhere between 10 to 100 times the amount of cash on hand (i.e. customer's deposits).

As such, the amount of outstanding loans in the form of credit card, automobile, business, or real estate loans may completely dwarf the bank's true cash balances. In addition, most U.S. banks effectively maintain the equivalent of 0% to 1% (effectively ATM and minimal vault money) of their entire customer savings balances actually within the bank's vaults.

In late February 2010, a recent financial analysis projected that there were possibly 4.6 million plus mortgages in the U.S. now over ninety (90) days delinquent. Many of my associates are telling me stories about homeowners who have not made a mortgage payment in over two (2) years, and they still have yet to receive a foreclosure notice.

In various "Trust Deed" states like California, lenders may not be able to pursue the delinquent homeowner for any future financial losses should the homeowner "walk away' from their "upside down" property if the homeowner used a "purchase money loan" to buy the property. If the property owner used a first mortgage loan or a concurrent 1st and 2nd (or a "piggyback" loan) to originally buy the home, then they may many times walk away from the property without fear of the lender coming after them for their losses.

If the property owner place a 2nd loan just one day after the original purchase date or refinanced their existing purchase money 1st mortgage (rate and term or cash out), then the lender may later pursue the property losses for any financial losses as they can do in Texas, and in many other states around the USA. For more advice on this complicated subject, please consult with your own financial advisors.

Barclays Bank and the Wall Street Journal are predicting about 1.6 million in distressed property sales this year via short sales or foreclosures. While this number is large, it is still 3 MILLION less than the projected 4.6 million plus mortgages which are thought to now be more than ninety (90) days delinquent.

In many cases, a bank may have to set aside up to $8 for every $1 dollar in acknowledged foreclosure losses. Since most large banks are effectively insolvent, they do not have the cash reserves readily available to cover any additional foreclosure losses.

In many situations, the stressed and cash-strapped homeowner is actually healthier financially than their own bank who struggles to avoid financial insolvency themselves. The smaller credit unions and community banks tend to be financially more solvent these days as they were less reliant upon the risky Credit Default Swap and other derivatives investments for higher yields in the past.

The good news is that more short sales are being approved these days as banks have to unload their non-performing loans anyway possible these days. In addition, there are more foreclosure investment opportunities than ever before if you know where to look for them.

The Federal Housing Administration (FHA) is a government insured entity which was established back in 1934 in order to assist home buyers with small down payments, low interest rates, and long loan terms.

This mortgage insurance program helps protect lenders against their future losses should the homeowner later default on their loan payments. There have been close to 40 million FHA home loans made to date across the U.S. since the creation of FHA back in 1934.

As the ongoing Credit Crisis continues to worsen, a higher percentage of home buyers or people wishing to refinance their existing mortgage loan(s) have relied upon FHA to qualify for a new loan partly due to tightening lending standards for both conventional and jumbo (greater than $417,000 loan amounts) loans in recent years.

Approximately 25% of all mortgage loans originated today are now insured by FHA. In many high cost regions of the U.S., FHA loans may be as large as $729,750 (up to almost 97% loan to value (LTV)). In recent times, home sellers were allowed to credit their home buyers between 3% and 6% toward their recurring and non-recurring closing costs.

As I speak or meet with many Realtors and professional real estate investment advisors, I am hearing that FHA is really the driving force behind a high percentage of home sales (existing and new) due to the higher loan to value limits, lower rates, and lower FICO credit scores allowed for these same loan products.

As the options for stated income, lower FICO credit scores, and higher leveraged conforming and jumbo loans have been reduced in recent years, more people have become dependent upon the FHA loan product. In many regions of the U.S., FHA insured mortgage loans may represent over 50% of all new home sale mortgage loans now within new development subdivisions.

In Southern California for example, the highest percentage of home sales seem to be in the more affordable price regions ($100,000 to $400,000 price range) such as Riverside County, or in the lower end of the price spectrum in Los Angeles, Orange, and San Diego Counties.

In 2008, FHA insured loans represented close to $400 billion nationwide. Last year, approximately one (1) million homeowners were able to refinance out of their existing sub-prime or Alt-A short term fixed rate mortgage loans into longer term (30 year fixed) mortgage rates offered by FHA as well.

If more existing FHA borrowers continue to default on their existing mortgage loans nationwide, then the FHA's already dwindling insurance cash reserves may drop too low to cover any future mortgage losses.

As a result of concerns about the record high foreclosure rates, weakening bank balance sheets, and low cash reserves for FHA, there are potential changes being discussed in regard to FHA which may include these following points:

1.) Tightening the underwriting guidelines to qualify.
2.) Increase the FHA insurance premiums to the borrower.
3.) Increase the required down payment requirements.
4.) Increase the minimum FICO credit score required to qualify.

It may be easier to qualify for a purchase or refinance loan now rather than later in the year especially if long-term thirty (30) year fixed mortgage rates continue to rise due to the reduced demand for our 10 year Treasury Bonds (30 year fixed mortgage rates are tied to these bond yields) in recent times.

Regardless of the weakening financial markets and the U.S. economy, there continue to be options or solutions for many real estate situations if you know where to look these days. Sadly, the options now are much less than in recent years though.

According to recent home selling statistics just released, new home sales percentages were up 27% from the previous record month low. Will the positive home selling trends continue next month or even next year? We shall see if these tax credits, low rates, and government insured high loan to value loans will continue later in the year which may continue to stimulate the home selling market.

As home sales were already near all time lows, an increase in sales activity was more likely as they were more likely to only get better in the near term due to the recent tax credits offered to home buyers, low interest rates, government insured mortgage loans up to almost 97% (to $729,750), and a slighly improving jumbo mortgage loan market due to the increase in the number of private equity investors who are beginning to purchase these same jumbo loans in the secondary markets.

Unemployment numbers continue to worsen though nationwide so hopefully the job market begins to improve so consumer spending and our entire economy may strengthen.

Foreclosure filings were up over 16% in the 1st quarter of 2010 from the same time period just one year earlier. Over 920,000 homes received some form of a foreclosure notice during this same 1st quarter time period nationwide. March 2010 saw the biggest month over month increase in at least the past five years as well.

It seems that banks are beginning to increase the foreclosure process a bit more as opposed to continually delaying the foreclosure time period partly due to the fact that banks had too many non-performing mortgage loans on their books, and they did not want to take their losses too soon.

According to RealtyTrac (an Irvine based foreclosure company), they had recently estimated that over 1 million homes may go all the way to sale and end up back with their respective banks. In addition, Realty Trac estimates that there may be over 4 million total foreclosure filings this year alone nationwide.

Nevada (1 in 33 homes were in foreclosure), Arizona (1 in 49), Florida (1 in 57), California (1 in 62), and Utah (1 in 88) were the top 5 states with the highest foreclosure percentages nationwide.

We continue to offer our clients financing options to purchase these same distressed properties before or at the final foreclosure sales. In some cases, we may even be able to help the existing homeowner prevent their foreclosure sale from happening in the near term.

For more details, please email or call me in regard to any of these topics.

As Wall Street, Big Banks, insurance companies, and other large businesses continue to be bailed out by various bailouts via the Fed or the U.S. Treasury, it seems time that the individual home owner was provided with some help as well these days. Home prices continue to drop significantly in various "Bubble" region states like California, Arizona, Florida, Nevada, and other midwestern regions.

We are actively working with individual property owners in Southern California in order to try to assist them with their own home sales coupled with possibly discounting their existing mortgage debt significantly in order to get these home sales through in a timely basis. When a high percentage of property owners in California have mortgage debt which far exceeds their current property value, it can be very challenging for a homeowner to sell the home without the existing lender's permission.

We have a team of experienced brokers, foreclosure experts, real estate and business attorneys, and mortgage professionals who each have on average decades of experience to assist property owners with the concurrent sale and discounted mortgage debt transactions. In many cases, the existing mortgage debt is drastically reduced so they sale may go through as well as possibly generating extra cash for the homeowner.

Regardless of how complicated the foreclosure or home sale situation may appear to be to the homeowner, please contact me for the best ways which we may be able to assist you and your family.

As we now are well into the first quarter of 2010, the various financial markets continue to either worsen, or not make any sense whatsover. Typically, a country's economy is considered somewhat solid if their overall unemployment numbers are low. Sadly, many economists and financial analysts nationwide are now saying that the true unemployment numbers may lie somewhere between a low of 10% to as high as 22%.

Strangely, the U.S. stock market (i.e. the Dow Jones - a group of 30 companies) values have been on an upswing over the past years as the index hovers near 10,000. As retail spending has been on a major downswing over the past few years, these relatively high Dow Jones index numbers seem to defy logic.

Many financial experts believe the current Dow Jones' Price to Earnings (P / E) Ratio numbers may be at all time highs right now. High P / E ratio numbers tend to show investors that the stock values are overvalued, and may foreshadow a drop in these same respective stock value numbers.

As bizarre as the U.S. stock market situation seems right now, the U.S. bond market is even more unusual as one actually reviews what is going on with the U.S. Treasuries Bond Market. As America is currently the largest debtor nation in the history of our planet, our spending levels the past few years have escalated to ridiculously high levels.

In years past, America may borrow the money from individual investors, companies, foreign investors, and foreign governments and, in turn, issue IOUs via these same bond instruments. Some Treasury securities may be in the form of short term Notes (i.e. 90 days), and other securities may be issued in the form of longer term Bonds which are due and payable several years down the road.

Three of the most common Bond bidders or investors in years past have typically falling within one of these three major categories:

1.) Primary Dealers: These are the banks and financial institutions which trade daily with the Federal Reserve and the Bank of New York who typically have to buy treasuries at auction in order to temporarily park their money.

2.) Direct Bidders: These are the usual investors such as "Mom and Pop from Main Street", IRA or 401 pension money, and other direct investors.

3.) Indirect Bidders: Those investors who tend to place their orders anonymously through direct bidders.

Several years ago, Japan and China were thought to purchase up to 50% plus of all U.S. Treasury debt each year. Last year, the Federal Reserve supposedly purchased the bulk of the Treasury Bonds as there were not enough Primary Dealers, Direct Bidders, Indirect Bidders, or foreign investors (private or government) in order to keep the bond market from collapsing.

When the Federal Reserve and U.S. Treasury are forced to buy U.S. bonds by printing money "out of thin air", then this may be a scenario which leads to hyperinflation and a weakening U.S. dollar.

Please remember that 30 year mortgage rates are tied directly to the 10 year Treasury Bond yields. In years past, less bond investors typically meant higher bond yields which, in turn, led to much higher mortgage rates. If we were in "normal" economic time periods right now, then our long term mortgage rates (i.e. 30 year fixed mortgage rates) may be closer to 10% plus due to the incredibly low bond investment demand.

In recent days, weeks, and months, Treasury bond auctions have primarily come from Primary Dealers (those financial institutions who are forced to buy this debt). Sadly, a Treasury debt auction which attracts mainly Primary Dealers may be very BAD NEWS for the U.S. bond market as it means that investors (individual Americans and foreign investors) are not buying much debt either. In fact, China keeps issuing press releases threatening to SELL much of their U.S. bond holdings instead of buying more debt.

Many of these Treasury Bond offering prices are actually yielding prices in the 0.0000% to 0.50000% price range. How can these incredibly low to negative yields actually inspire or motivate many investors to purchase these short to long term debt offerings? If many investors believe that we are on the verge of rampant hyperinflation in the near term, then this may mean that this debt will be paid off down the road with cheaper dollars.

The stock, bond, real estate, and commodities markets are all interrelated to one another. As the largest banks continue to weaken nationally due to their trillions in dollars in on and off balance sheet debts (i.e. Collaterized Debt Obligations (CDOs), Credit Default Swaps, Structured Investment Vehicles (SIVs), Interest Rate Option Derivatives (the primary debt and insurance instrument which was the main reason why Orange County, CA filed for bankruptcy in '94 as a result of their Merrill Lynch investments, and other complex debt and insurance hybrid instruments), I expect hundreds, if not thousands, of more banks to fail in the very near future.

As a result, I see a continued economic downturn in both the short and long term UNLESS something dramatically changes for the better in the near term. Hopefully, some of the financial "geniuses" on Wall Street, at the U.S. Treasury and the Fed, or in Washington D.C. may be able to figure out some positive solutions which may improve this national financial disaster situation.

According to First American Title's CoreLogic's Loan Performance Home Price Index (HPI), national home prices fell 5.7% in a one year time period between November 2008 and November 2009.

Nevada experienced the largest price drops within that same one year time period as home values dropped an average price of 22.5%. Arizona had the 2nd biggest price drop of 14.9%. Florida had the 3rd biggest price declines at 13.7%. Michigan was 4th with a 12.6% price drop, and Idaho dropped 11%.

The foreclosure wave continues to escalate in many of these same "bubble" states with many adjustable loans beginning to adjust this year and next. In addition, there are a high percentage of FHA loans which are now delinquent, and most of these loans were funded at a 97% LTV value range so many of these same FHA homes are now "upside down".

We continue to provide our clients with the best foreclosure investment opportunities for both individual homes or large REO pools. In addition, we may provide you or your group with some excellent terms to purchase these same residential or commercial properties.

The ongoing and worsening Credit Crisis continues at a rapidly escalating downward spiraling pace. The various bailout programs offered by governments and Central Banks worldwide have done absolutely nothing to help the everyday citizen on the street.

These bailout programs have only worsened the financial crisis worldwide, and have adversely impacted our once capitalistic ways of life by having more and more centralized government control over our various major industries such as the automobile, airline, and health "care" industries as well as the last remaining firms on Wall Street (both of them).

Most obviously, the banking and mortgage market systems have been dramatically impacted by the nationalizing of both Fannie Mae and Freddie Mac who purchase most residential mortgages nationwide. FHA continues to represent a larger percentage of the national mortgage market although the FHA insurance system (and SBA) themselves are close to being technically insolvent sadly.

The first major financial meltdown of this century was probably the 2000 Nasdaq meltdown. Do you remember when the Nasdaq index hit near 5,000 in March of 2000 just prior to the High Tech Bust? This was followed shortly thereafter by the Telecommunications Meltdown (i.e. Global Crossing, etc.). Few people may remember that the Telecommunications meltdown was actually a bigger financial disaster than the High Tech meltdown as the stock and bond losses were staggering.

The official start of the latest financial crisis officially called "The Credit Crisis" began back in August of 2007. However, major sub-prime lenders such as New Century Mortgage (based in Irvine, CA) and others were shutting down well before this official starting date. This mortgage collapse was also followed by a collapsing structured debt product meltdown.

As I have been saying and writing for years, the largest banks in America are all technically insolvent primarily due to their off balance sheet derivatives investments (Credit Default Swaps, etc.) which they seem to "forget" to calculate in their earnings reports each quarter. Sadly, their current losses may far exceed the entire value of their respective financial institutions (cash, stock value, interest income, etc.). Local credit unions and community banks may be a much safer place to put your money than in the largest banks nationwide.

The Credit Crisis, again, is primarily all about the unwinding of the derivatives markets worldwide which may include structured investment or debt instruments such as Credit Default Swaps (a glorified form of a bet which may be hedged or insured by a third party which is probably a shell entity based in the Caribbean as many of these "insurance companies" actually were shown to be in the past), Collaterized Debt Obligations (or Mortgage Backed Securities pools - a package of real estate mortgages in the hundreds of millions of dollars), Structured Investment Vehicles, or other complicated financial entities which are really only understood by a few Ivy League MBAs.

I personally expect the economy to get much worse in 2010. I hope that I am wrong. The more that I research these financial topics, the more concerned that I get in regard to the worsening financial markets and overall economy. Again, the word "crisis" in Chinese means both "danger" and "opportunity" so we all need to focus on the possible positive aspects of this worsening financial meltdown.

There will be some incredible real estate buying opportunities for literally "cents on the dollar" if you know where to look both in your local regions and well as across our nation. Banks will have to unload their non-performing properties and mortgages for much needed cash in the near term.

Coincidentally, our U.S. Dollar may also be worth "a few cents on the dollar" too as hyperinflation continues to escalate partly due to the U.S. Treasury's full speed printing presses which keep creating dollars "out of thin air". Many banks literally are completely out of cash since so few banks actually keep much of their cash reserves on hand.

In fact, some banks may only keep 1% to 3% of all of their deposits on hand primarily in the form of ATM money as they lend out the bulk of their deposits (real estate, business, auto, and consumer loans) via our highly leveraged Fractional Reserve Banking System at sometimes 10 to 50 plus times their total current deposit balances.

For example, your local bank may have $1 million in total bank balance accounts, but they may leverage those assets ten times (or $10 Million in this example) in the form of business, personal, credit card, or real estate loans to others. In the USA, only 3% of all money is currently in the form of actual hard currency (coins or dollars). The rest of the "money" is actually computerized, digital money.  

Out of adversity, comes opportunity. We either stick our heads in the sand and believe that things will get drastically better in our economy, or we try to focus on the opportunities which may be just around the corner. Happy 2010!!!!!

*** Linked to this same blog is a graph which I created a few months ago to better illustrate my perceptions in regard to what the Credit Crisis is really all about worldwide.

According to the Standard and Poor's / Case Schiller Home Index, national home prices continued on a downward trend through their latest report released (end of October 2009). According to the same Index, home prices dropped as follows over a one year time period:

1.) Atlanta          - 8.1%.
2.) Chicago         - 10.1%.
3.) Detroit           - 15.1%.
4.) Las Vegas     - 26.6%.
5.) Los Angeles  - 8.1% (a very misleading number as many higher end West Los Angeles areas experienced a 30% + price decline over the past twelve months).
6.) Miami            - 14.0%.
7.) New York      - 7.7%.
8.) Phoenix        - 18.1%.
9.) Seattle         - 12.4%.
10.) Tampa        - 15.2%.

There are numerous investment opportunities nationwide. Specifically, the "bubble states" like California, Nevada, Florida, and Arizona offer the most distressed property buying opportunities of any region nationally.

We continue to offer our clients both access to the best real estate bargains as well as the best leveraged and affordable money to purchase these distressed residential or commercial real estate properties.

Happy New Year to All.

Of all of the residential mortgage loans existing today, approximately 75% were refinance or purchase loans funded during the "Bubble" years between 2003 and 2007.

The vast majority of these same funded loans (2003 to 2007) were highly leveraged refinance loans which typically provided the property owner with cash out via a 1st mortgage only, a stand alone 2nd mortgage or line of credit, or a combination of a concurrent 1st and 2nd mortgage.

There were approximately 500% more cash out refinance loans than new purchase loans (a 5 to 1 ratio) during this same "Bubble" year time period as well. In many cases, property owners used the cash to pay off consumer (i.e. credit cards), business, and school loans, or to use the cash to pay daily expenses or invest the money elsewhere.

During the same "Bubble" years ('03 to '07), there were an estimated 43 million residential mortgages funded. According to a recent Mortgage Banker's Association report, approximately 8.2 million of these 43 million existing residential mortgage loans (approximately 14.41%) were in some form of default, delinquency, or foreclosure status nationwide.

As property values have declined anywhere from 20% to 50% plus in various areas nationwide since the peak "Bubble" years, then many of these same properties funded have little, no, or negative equity right now. The hardest hit states in terms of value decline are the following "Bubble" states (those states that appreciated the most in the same "Bubble" years): 1.) California, 2.) Florida, 3.) Nevada, and 4.) Arizona.

Borrowers who currently are "upside down" in their homes (debt exceeds value) are more likely to walk away from their homes even if they can afford the monthly mortgage payments. As a result, we may sadly continue to see a much larger wave of mortgage defaults in 2010.

We will continue to keep our clients informed though about the best investment opportunities as the Credit Crisis continues onward.